OST-97-2058 / OST-96-1700 / American and British Airways / American and TACA / Answer of Delta / July 29, 1997

Joint Application of:

under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for alliance agreement

Joint Application of:

for exemptions, certificate authority, undocketed foreign air carrier permit authority, and statements of authorization

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procedures in the proceedings be suspended pending the submission of the supplemental information and an opportunity for interested parties to file comments on the submissions.

The Department has already instituted proceedings to examine the public interest and competition issues relating to the proposed alliances between American and British Airways and between American and The TACA Group. American has also sought approval of a marketing alliance with Avianca (a Colombian-flag carrier), Aerocalifornia (a Mexican-flag carrier) and Lapsa (a Paraguayan-flag carrier), and the Department has recently approved a code-share alliance between American and TAM (a Brazil-flag carrier).

Continental's Motion was in response to an announcement that American, British Airways, Iberia, and Aerolineas will join forces in an alliance pursuant to which ( 1 ) American would acquire an equity interest in Interinvest, the holding company controlled by Iberia which owns Aerolineas and Austral (Aerolineas' feeder carrier), (2) American would establish a cooperative alliance with Iberia (which would also involve an equity investment), and (3) British Airways would

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enter into a marketing alliance with Iberia and also invest in the Spanish carrier. Reports also indicate that all five carriers plan to enter into cooperative marketing (including code-sharing) arrangements.

Before proceeding with an evaluation of the pending American-TACA and American-British Airways alliances, it is imperative for the Department to receive information and documents and conduct oral evidentiary hearings with respect to the planned equity and marketing arrangements among American and British Airways on the one hand, and Iberia, Aerolineas, and Austral on the other hand, to examine, among other issues, the interrelationships between the proposed Aerolineas/Iberia alliances, the American/TACA alliances and the American/British Airways alliance.

As Delta has already pointed out in the American-TACA proceeding, American's principle reason for entering into an alliance with the TACA Group is to further entrench its already dominant position in the U.S.-Central American marketplace. American and the TACA carriers are each other's principle competitors to and from the United States. The evidence in the American-TACA docket indicates that American's primary impetus in creating the alliance is to eliminate competition with its principal Central American competitors.

American's plan to join forces with Aerolineas Argentinas, its largest competitor between the United States and Argentina, represents American's latest

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The American/British Airways-Aerolineas/Iberia proposals raise similar "serious competitive issues" that require close regulatory scrutiny. Argentina is one of the most important U.S. international aviation markets. Similar to the American-TACA situation, American and Aerolineas are the two dominant carriers serving U.S.-Argentina. Nonstop service is provided to Argentina only from New York (J[K) and Miami. American and Aerolineas provide 77% of the nonstop services between Miami and Argentina, and two-thirds of the nonstop service between New York and Argentina. Significantly, U.S.-Argentina is one of the most restrictive markets in Latin America. The current bilateral arrangement permits only two U.S. carriers to provide combination passenger services between

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the United States and Argentina. Although there are no express limitations on designations, all available U.S.-Argentina combination service frequencies have been allocated, and there have been no new frequencies available since 1995. /1

In light of the highly restrictive aviation regime between the United States and Argentina, which prohibits access by Delta and other U.S. carriers, the Department should not permit the formation of a mega-alliance (through equity investment, management agreement and/or cooperative marketing arrangements) between the dominant U.S.-flag carrier and the dominant Argentina-flag carrier. Before any such arrangement should be allowed to proceed, the U.S. Government must insist that Argentina agree to an open skies agreement providing for unrestricted access (both de jure and de facto) by U.S. carriers to Argentina (including via intermediate points and beyond to points in Latin American). In the absence of such unrestrained access, the substantial barriers to entry would allow American and Aerolineas to exercise unchecked market power to the detriment of the traveling and shipping public and competition.

The Department should consider the public interest and competition issues relating to the American-Aerolineas-Austral and American-British Airways-Iberia alliances in the context of the pending American-TACA and American-British

1/ The Government of Argentina has advised the U.S. Government that should the U.S. desire to designate additional U.S. carriers, consultations between the two governments would be required.

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In light of the important competition and public policy issues raised by the proposed arrangements among American, Aerolineas Argentinas, British Airways, Iberia and Austral, the public interest compels a thorough evaluation of the interrelationships between the new alliance proposals and the American-TACA and American-British Airways alliances presently pending before the Department. In addition to requiring the applicants to submit the information items requested by Continental in its Motion, Delta agrees with TWA that the Department should institute oral evidentiary hearing procedures to examine the significant adverse competitive implications of the proposed multi-continent alliances. The issues to be explored in such a hearing proceeding should include, in addition to those highlighted by TWA and Continental, the extent to which the participants in the various alliances intend to consolidate traffic flows which would allow them to intensify their already existing domination of U.S.-Central America, U.S. Argentina, and U.S.-UK routes to the detriment of competition in these important U.S. aviation markets.

For the foregoing reasons, Delta urges the Department to grant Continental's Motion directing American, British Airways and the TACA Group

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to submit supplemental information, to stay further proceedings pending the submission of such information, to provide interested parties an opportunity to respond to the material submitted by the various joint applicants, and to institute oral evidentiary proceedings to explore more fully the consequences of proposed interrelated alliances.

Respectfully submitted,

Robert E. Cohn

SHAW, PITTMAN, POTTS & TROWBRIDGE

2300 N Street, N.W.

Washington, D.C. 20037

(202) 663-8060

Counsel for DELTA AIR L[NES, INC.